Since its invasion, Ukraine’s allies have taken a plethora of actions in an attempt to persuade Russia to stand down. This has included targeted sanctions against Russian entities and individuals, as well as removing the country’s access to the international finance system. The intention is to apply pressure on Russia to withdraw from Ukraine, while making it difficult for the Kremlin to access necessary resources to finance the war.
While diamonds garnered early attention, efforts have increasingly turned to Russian gold. Read IMPACT’s analysis on Russian diamonds and conflict financing.
As early as March 7, the London Bullion Association (LBMA) suspended all Russian refineries from its Good Delivery list. G7 states announced in June that they intend to ban gold exported by Russian companies. Other countries, notably EU Member States and Switzerland, have followed suit.
Russia’s Gold Sources
Over the years, Russia has intensified efforts to build up its gold reserves in response to previous sanctions related to its 2014 invasion of Crimea. An estimated 150,000 gold bars—equivalent to $140 billion USD is currently sitting in Russia’s central bank. This makes Russia the fifth largest holder of gold in the world.
Russia’s significant domestic production has contributed to its stockpile. It is the third largest gold producer globally, with approximately 330 tons of gold produced per year, worth around $20 billion USD. This gold is refined, sold to commercial banks, and then often on to the international market. In 2021, the UK imported $15.2 billion USD of Russian gold, with Switzerland and Turkey also being main destinations.
Russia also allegedly smuggles in gold from foreign markets, like Sudan. There is increasing evidence that Russia is operating in Africa’s gold sector, contributing to insecurity in the region.
Evading Sanctions Through Gold
Some countries maintain their gold reserves in foreign banks to easily access international markets, but these assets can be frozen due to sanctions. With most of Russia’s stockpile sitting in its central bank, it is a huge advantage for the country.
The precedent of a country under sanctions selling off its gold reserves was set when Venezuela allegedly sold more than 7 tons of its gold stockpile in 2019. Reports allege Russian involvement by providing the airplanes to ship the gold bars from Venezuela to Uganda and the United Arab Emirates (UAE). All deny any involvement in the scheme. Venezuela’s gold reserves decreased in 2021 by 79 tons, without any explanation for where the gold went.
So, while moving 150,000 gold bars from Russia’s central bank despite sanctions would be difficult—it is not impossible.
Thus far, there haven’t been any indications of a mass sell-off of Russia’s gold reserves, though the concern remains valid. The global gold sector hosts a number of actors and countries willing to buy gold regardless of the source. Cases of gold smuggling into the UAE, India, Turkey, the United States, and more, have illustrated the relative ease with which undocumented gold can be laundered into legitimate supply chains. Gold boasts a large black market that still remains far from the grasp of individual policymakers or law enforcement.
Sidestepping the Import Bans
In spite of efforts to ban Russian gold by a number of countries—it is still entering the international market.
August saw the highest rise in Swiss imports of Russian gold in two years—with 5.7 tons imported. The Swiss regulations allow imports of gold that left Russia before August 4. Swiss imports were flagged already back in June when 3 tons of Russian gold was sent to Switzerland. While not illegal, no refinery wanted to own up to the purchase.
Consumers are wanting to avoid Russian-origin products. But it seems companies have found a workaround by re-melting and reselling older Russian bullion at international refineries.
Additionally, while many traditional markets are closed for Russian refiners, China is open for business.
In July, China imported $108.8 million USD of Russian gold—a 4,800% increase from the same time last year. With China’s role as the largest producer and consumer of gold internationally—its clear Russian origin gold is entering the global supply chain.
Looking to New Sources in Africa
There are also growing indications that Russia’s ambitions for the gold sector have expanded beyond its own borders, where its presence is contributing to increased instability—apart from the war in Ukraine.
Russia has been steadily growing its presence in Africa, concentrated in countries with high levels of corruption, dictatorial heads of state, instability, and stoking anti-West sentiment. Reports detail Russia’s close ties to the Wagner Group which operates in-country, though any connection is denied by President Putin. The Wagner Group has allegedly been provided access to large deposits of untapped resources, especially gold.
Some have claimed that Sudanese gold has been particularly important for increasing Russia’s reserves ahead of its invasion of Ukraine. One report suggested 30 tons of gold smuggled from Sudan to Russia annually. Another suggested 32.7 tons of Sudanese production was unaccounted for in 2021. It detailed Russia’s presence in Sudan, despite the two countries not declaring anything in trade data for the gold sector.
In Mali, where Wagner has provided paramilitary support to the government, there are allegations that the group is pushing to be given rights to some of the country’s gold mines, already held by Canadian and Australian companies, in compensation for their support.
The increasing presence of Russia in Africa is taking place amidst setbacks to democratization efforts which Russia (as well as China) have been accused of supporting through digital misinformation campaigns. Insecurity is also on the rise, fueled by the presence of armed terrorist organizations across the Sahel, which themselves have ties to local and regional gold supply chains. All of this instability is good business for Russia, which is the largest arms supplier on the continent. It also offers up the services of its paramilitary groups to train government security forces on how to fight terrorist threats, in return for access to natural resources. All while having been accused itself of human rights violations in several African countries.
Limitations of Responsible Sourcing
The extent to which gold serves as a financial instrument means that it is quite unique when it comes to responsible sourcing. The risks with respect to money laundering and conflict financing are higher than other minerals.
To date, the dominant focus of responsible gold sourcing efforts has been focused on encouraging or mandating companies to identify and mitigate individual supply chain risks, such as cutting direct or indirect ties to armed groups, human rights violations, or the use of child labour.
But Russia’s recent invasion in Ukraine is another illustrative example of the limitations to this approach.
It also spotlights how a shifting geopolitical landscape can affect responsible gold efforts in Africa and the potential ramifications for regional and international security.
For one, there is no shortage of actors available and willing to buy gold around the globe, with no questions asked. Even if a company cuts off a supplier under suspicion of ties to conflict financing—including a widely criticized invasion of a sovereign nation—the impact of this decision is unlikely to negatively affect those involved if they can simply turn around and sell elsewhere, as witnessed by the spike of Russia gold imports to China.
Secondly, global refiners are increasingly reliant on recycled gold, and the wide definition of what constitutes “recycled” makes it an excellent vehicle for laundering money and illicit gold. Russian refiners that are members of the LBMA self-reported having sourced over 35,000 kg of recycled gold from within the country in 2021. Where this gold comes from is likely a mystery, as the origin of recycled gold is rarely questioned.
Furthermore, in addition to China, the UAE has been identified as a likely destination for Russian gold exports. Multiple reports over the years have identified Dubai as a target destination for gold smugglers from Africa to launder gold, and the UAE is a large exporter of recycled gold—mostly to Switzerland. It’s suspected that illicit ASM gold from Africa and other countries makes up a significant portion of these recycled gold exports.
Recent analysis of the new India-UAE Comprehensive Economic Partnership Agreement (CEPA) signed last February—which fails to even define scrap or recycled gold—has further raised the alarm, stating that, “[i]t is likely that the flood gates of unbridled import of gold from UAE in the guise of scrap are being opened.” This poses to make Dubai an even more attractive destination for gold coming from dubious actors, including those involved in bolstering Russia’s war against the Ukraine.
Risk to International Peace & Security
Russia’s invasion of Ukraine has thrown into question not only the role of gold and conflict financing, but also the efficacy of responsible gold sourcing efforts.
Russia has access to billions of dollars in its gold reserves, tons of gold is being produced domestically and still finding buyers on the international market, and its presence in Africa’s gold sector has been accompanied by allegations of serious human rights violations and fueling of instability.
Despite what consumers may want to hear, Russian gold is entering our supply chains and Russia is profiting from its gold sources.
Importantly, Russia seems to be doubling down on the current status quo. This August, the Russian Finance Ministry announced its intention to create the Moscow World Standard (MWS), a new international standard for precious metals—after its ban by the LBMA earlier this year.
Industry analysts speculate that if the MWS were to start up, it has the potential for a significant power shift on the global gold market, reducing the influence of the LBMA, and threatening the position of the US dollar with gold pricing set in national currencies.
Russia is already strategically using gold to disassociate itself from the US dollar. Earlier this year, the central bank fixed the price of gold to rubles. When Russia announced it would require payment for its main exports like natural gas and oil in its local currency, overseas buyers were left trading gold for rubles. As a result, the ruble gained strength, while the country continued to increase its gold reserves.
It is clear that Russia is redefining the gold trade. Gold has become a tool that is shaping geo-political strategy and financial futures of nations.
At the same time, much of Russia’s questionable actions in the gold sector are not new. Most likely there has already been gold tied to conflict and human rights violations being smuggled through Russia’s supply chain. The invasion of Ukraine has brought international condemnation to Russia’s actions and possible financing. But it’s short sighted to ignore Russia’s expanding reach on the international gold market and strategy of using natural resources as a destabilizing tool.
Whatever the international community decides as its next step, actions to date with regards to Russia’s gold have been inadequate. More importantly, it’s become ever clear how ineffective our ability is to deal with the issue of conflict financing, security, and supply chains.
If companies are importing Russian gold, only to re-melt it for consumers who are demanding better—this should tell us the state of our affairs. Companies need to step up and support transparency, because right now many are hiding behind empty words of “responsible” and “ethical.”